Consumer borrowing climbs at sharp pace

WASHINGTON - Consumer borrowing rose in March at the fastest pace in four months, more than double the increase of the previous month, in what was seen as a sign of rising economic stress.

The Federal Reserve reported yesterday that consumers increased their borrowing at an annual rate of 7.2 percent, compared with a 3.1 percent rate of increase in February. The gain was much larger than economists had been expecting and reflected strong borrowing on credit cards and also in the category that includes loans for automobiles.

The increase in consumer debt totaled $15.3 billion at an annual rate in March, much bigger than the $6 billion increase that economists had been expecting.

Economists said consumers were being forced to make greater use of their credit cards during difficult economic times when they are being battered by job losses, soaring gasoline prices and higher food costs.

"This represents distressed borrowing. Consumers need cash and they have turned back to their credit cards to fill the void left by lost jobs and weaker incomes," said Mark Zandi, chief economist at Moody's Economy.com.

Consumers have turned to credit cards as banks have tightened standards for home equity and other loans. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion. That's the most since the first three months of 2001, when the economy entered its last official recession.

"The days of extracting cash from one's home to spend on goods and services are long gone," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.

Borrowing on credit cards was up at an annual rate of 7.9 percent, compared with a 5 percent gain in February, while borrowing in the category that includes automobile loans jumped by 6.8 percent, compared with a 2 percent increase in February.

The overall growth in debt of 7.2 percent at an annual rate was the biggest gain since an increase of 8.25 percent last November.

The Fed's measure of consumer borrowing, which does not include any debt secured by real estate such as mortgages or home equity loans, stood at a record $2.558 trillion in March.

In other economic news, the Labor Department reported yesterday that worker productivity rose by a better-than-expected amount in the first three months of the year while labor cost pressures eased.

Productivity, the amount of output per hour of work, increased at an annual rate of 2.2 percent in the first quarter, the department said. That was slightly higher than the 1.5 percent increase that had been expected.

In a sign that inflation could be easing, labor cost pressures slowed a bit. Unit labor costs rose at an annual rate of 2.2 percent, down from a 2.8 percent rise in the final three months of last year.

While rising wages and benefits are good for employees, those increases can lead to higher inflation if businesses are forced to boost the cost of their products to cover the higher payroll costs.

However, if productivity is increasing it allows businesses to finance higher wages out of the increased output.

Analysts read the bigger-than-expected rise in productivity and the smaller increase in unit labor costs as a good sign that inflation pressures, at least on the labor front, are remaining under control and the country is not facing the danger of any type of wage-price spiral.

"There is certainly nothing to worry about here from a cost-push inflation perspective," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

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